Basics of Financial Planning
In recent times you must have come across term called Financial Planning thanks to business news channels & print media. You must be wondering what it means?
Here is the answer -
What is financial Planning?
Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for retirement.
The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.
Benefits of Financial Planning
1. Financial Planning provides direction and meaning to your financial decisions.
2. It helps you to understand how each financial decision you make affects other areas of your finances.
3. Financial Planning helps you to adapt more easily to life changes and feel more secure that your goals are on track.
Basics Steps one can follow for healthy financial life –
- Emergency Fund – In today’s fast changing, dynamic & uncertain economic condition one need to prepare for rainy days. It always makes sense to repair the roof when sun is shining. How much should be Emergency Fund? The calculation is simple. Your monthly expenses + EMI payments * number of months to get new job. It is advisable to create emergency fund for at least 6 months. This is first step in financial planning. I will cover more on emergency fund in my next article.
- Insurance – Second step is to get insure for any medical emergency. Now a days most of the employer provides health insurance aka mediclaim to there employees. But check for coverage offered & other terms & condition of the health insurance contract. Total family should be cover for any medical emergency. After insuring for one need to insure for life. In case of ones premature death. We will suggest that one should treat insurance as expense and not an investment. Instead of buying Investment + Insurance policies, Buy term insurance to get higher life cover at lower premium. Along with life insurance one need to be insured for disability. Personal accident policies cover disability & provides for fund when one is disabled (partially/completely) due to accident.
- Set Measurable goals – After taking care of all emergency, now it is time for setting up the specific goals that you want to achieve & when you want achieve. All this goals should be quantified. Like buying home after 2 years will cost for 40 Lakhs.
After following basic steps, you get into planning zone. Here you required expertise. I will discuss more on this in my next article. Till then Keep Planning – Keep Investing & Keep Smiling.
